Global merger and acquisition (M&A) activity has breached new highs, building on the record-breaking deal making streak from the beginning of the year that has been aided by low interest rates and soaring stock prices.
According to Refinitiv data, the total value of pending and completed deals announced in 2021 has already touched $3.6 trillion year-to-date, surpassing the full-year tally of $3.59 trillion in 2020.
So far this year, 35,128 deals have been announced, a 24% jump over last year.
Global M&As in the last 10 years
“The M&A momentum points to a fundamentally strong market looking ahead. This pace of dealmaking could continue for the next 18-24 months, with new financing solutions and sectors driving activity,” said Andrea Guerzoni, global vice chair at Ernst & Young.
“The strong demand from private equity and the rebound in SPAC acquisitions …. should support a robust deal pipeline in the near to mid-term.”
The United States alone accounted for $2.14 trillion worth of M&A deals this year, while Europe and the Asia-Pacific raked in $657 billion and $620 billion, respectively.
Breakdown by region for global M&As this year
Matthew Barbieri, partner in charge at Wiss & Company, said looming tax increases on capital transactions have boosted M&A activity in the US
“You as a seller are facing the fact that if you wait until the new tax legislation is passed, and if it does pass in the manner in which it is being presented now, you are taking a ~20% hit on your net transaction value,” said Barbieri.
The technology sector, which typically accounts for the majority of deal volume every quarter, continued to lead the way — deals worth $799 billion were announced from the sector. Financial services M&A volumes stood at $442 billion, while industrials accounted for $438 billion.
Acquisitions by blank-check companies or SPACs (special-purpose acquisition companies) also hit a record $495 billion in the year-to-date period.
SPACs are listed shell companies that raise funds to acquire a private company with the purpose of taking it public. Going public through a SPAC merger has emerged as an extremely popular route for venture-funded private companies and startups over the past 18 months, as such a process allows such companies to sidestep the more onerous regulatory checks of a traditional initial public offering (IPO).
Analysts said dealmaking from large buyout firms and corporates, which have built up record levels of cash, would further bolster M&A volumes in the near term.
“Private equity firms have nearly $2 trillion in dry powder and there is a similar amount of cash on the balance sheets of the S&P 500. Combine the financial means to do deals with the need to readjust business models to the post-pandemic world, and you’ll find organizations increasingly interested in their M&A options,” said Jeff Black, partner at Mercer.
The merger between AT&T’s Warner Media and Discovery, home to lifestyle TV networks such as HGTV and TLC, is the biggest deal of the year so far, with the enterprise value of the new combined company standing at more than $120 billion.
The latest data from Refinitiv revealed that sectors which are still struggling from the pandemic, such as consumer retail and travel firms, have lagged other acquisitive sectors such as technology and healthcare on M&A activity this year.
The renewable energy sector has raked in about $18 billion worth of deals so far this year, more than twice the M&A volume that was generated last year.
“ESG is increasingly becoming an integral part of investment decisions,” said Ernst & Young’s Guerzoni.